Last updated by BM on December 12, 2022
Summary
- This article is part of our weekly series (MP Market Review) highlighting the performance and activity from the previous week related to the financial markets and Canadian dividend growth companies we follow on ‘The List’.
- Last week, ‘The List’ was down slightly with a minus -2.5% YTD price return (capital). Dividend growth of ‘The List’ remains at +10.6% YTD, demonstrating the rise in income over the last year.
- Last week, there were no dividend increases from companies on ‘The List’.
- Last week, there was one earnings report from a company on ‘The List’.
- One company on ‘The List’ is due to report earnings this week.
- Are you looking to build an income portfolio of your own? When you become a premium subscriber, you get exclusive access to the MP Wealth-Builder Model Portfolio (CDN) and subscriber-only content. Start building real wealth today! Learn More
“What is an investment, anyhow, but a body of capital that produces income. The income may be current income, or it may be prospective income, but it is the magnitude of the income, current or prospective, that determines the value of the capital which produces it.”
– Arnold Bernhard, The Evaluation of Common Stocks
DGI Truth #2: A rising dividend income stream will eventually lead to rising stock prices.
Let’s use real estate investing as an example. If you own a rental property in an area where rents have risen by ten percent annually for the past ten years, and someone approaches you to buy the property, the buyer must factor in future rent increases when deciding on a fair offer price. The property is worth more than its present value because of the relatively predictable rising income stream it produces.
Stocks with a long history of dividend growth offer the same type of value proposition, in that future dividend increases, are expected and will produce a growing stream of income that add value to the underlying company’s worth. Without a dividend and its growth, the future price for a stock becomes more speculative.
Now let’s look at a few examples from ‘The List’ to see if this theory holds true.
A railroad, a grocer and a utility. It doesn’t matter which industry our quality dividend growers are in. When you find one that grows both dividends and price in this manner, you begin to discover the magic of our dividend growth investing strategy.
What makes this sometimes hard to see in stocks is the very turbulent price movements that overwhelm income returns in the short term. Once you move beyond shorter-term cycles, the value of the stocks will be linked to the amount of income they produce for their owners.
Next week: DGI Truth #3: Dividends (income) grow faster than inflation.
Performance of ‘The List’
At the end of the post is a snapshot of ‘The List’ from last Friday’s close. Feel free to click on the ‘The List’ menu item above for a sortable version.
Last week, ‘The List’ was down slightly with a minus -2.5% YTD price return (capital). Dividend growth of ‘The List’ remains at +10.6% YTD, demonstrating the rise in income over the last year.
The best performers last week on ‘The List’ were Loblaws (L-T), up +2.67%; Canadian Utilities Limited (CU-T), up +2.53%; and Enghouse Systems Limited (ENGH-T), up +2.02%.
Magna (MGA-N) was the worst performer last week, down -4.99%
Recent News
The odds of your mutual fund consistently beating the market? Slim to none (Globe & Mail)
The article starts by asking and answering the billion-dollar question:
“Out of more than 650 Canadian actively managed equity mutual funds, how many of them were able to maintain superior returns over the last five years? Exactly zero.”
We say billion-dollar question because, for many years, investors’ hard-earned capital has been funneled back to wealth managers in the form of fees for returns that simply track the average of the markets or worse. They seem to know this as well (only one taker on the Buffett Bet in 2008).
There are many reasons for this, but my mentor Tom Connolly put it very succinctly in a recent blog article:
“Most professionals can’t win. Can’t. Notice I said ‘can’t’, not don’t win. Why they can’t is a complicated/interesting tale. It boils down to, and believe this, career risk. Professionals can’t afford to lose alone. They must conform.”
For many investors, this might come as shocking news, but for dividend growth investors, we have known this information for decades. It is precisely why we started researching different strategies over a decade ago and landed on dividend growth investing.
The best and worst provinces to live in for dividend investing (Globe & Mail)
It is usually a year into your dividend investing journey before you discover another magical aspect of this strategy; you pay fewer taxes on your dividend income than other forms of income.
We say about a year because you notice this deferred benefit when you file your first tax return as a dividend growth investor. As the author points out, the net impact depends on what province you live in.
Paying less tax than you do on regular and interest income means you will have more of your hard-earned capital to invest in dividend growth stocks, and income compounding continues.
Dividend Increases
Last week, there were no dividend increases from companies on ‘The List’.
Earnings Releases
One company on ‘The List’ is due to report earnings this week.
Enghouse Systems Limited (ENGH-T) will release its fourth-quarter 2022 results on Wednesday, December 15, 2022, after markets close.
Last week, one company on ‘The List’, Dollarama (DOL-T), reported their Q3 Fiscal 2023 earnings.
Dollarama (DOL-T) follows an off-cycle reporting schedule. Their fiscal year ends on October 31 each year. Their fiscal Q3 earnings are among the first on ‘The List’ to report in Q4 2022. The company released its third-quarter 2023 results on Wednesday, December 7, 2022, before markets opened.
“Our strong performance across our key metrics year to date speaks to our commitment to providing the best year-round value on the everyday products we offer, combined with a convenient and consistent shopping experience. As inflationary pressure on the consumer persists, we expect strong demand for consumable products to continue stimulating topline growth through to the end of the fiscal year. We aim to stay true to our compelling value proposition and to meet and exceed the expectations of our customers from coast to coast.”
– President and Chief Executive Officer, Neil Rossy
Highlights:
- 8% increase in comparable store sales(1) and 14.8% increase in diluted net earnings per share
- Fiscal 2023 comparable store sales growth assumption increased to between 9.5% and 10.5% and gross margin guidance narrowed to between 43.1% and 43.6% of sales
- New long-term store target for Dollarcity increased from 600 to 850 stores by 2029
Fiscal 2023 Third Quarter Highlights Compared to Fiscal 2022 Third Quarter Results
- Sales increased by 14.9% to $1,289.6 million
- Comparable store sales increased by 10.8%
- EBITDA increased by 11.3% to $386.2 million, or 29.9% of sales, compared to 30.9%
- Operating income increased by 11.5% to $302.7 million, or 23.5% of sales, compared to 24.2%
- Diluted net earnings per common share increased by 14.8% to $0.70 from $0.61
- 18 net new stores opened, compared to 16 net new stores
- 972,847 common shares repurchased for cancellation for $76.3 million
Outlook:
In the fourth quarter of Fiscal 2023, the Corporation expects to continue to benefit from strong demand for its affordable, everyday items in the context of inflation, including stronger than historical demand for lower-margin consumable products. As a result, the Corporation has increased its comparable store sales growth assumption for Fiscal 2023 from a range of 6.5% to 7.5% to the range of 9.5% and 10.5%. Based on gross margin performance to date and management’s visibility on open orders and product margins through the remainder of the fiscal year, the Corporation has narrowed its previously disclosed annual gross margin as a percentage of sales from a range of 42.9% to 43.9% to a range of 43.1% to 43.6%. The remainder of the Corporation’s annual guidance and previously disclosed assumptions on which guidance is based for Fiscal 2023 and issued on March 30, 2022, remain unchanged.
As of this date, the Corporation expects the following for Fiscal 2023:
- To open 60 to 70 net new stores
- Gross margin as a percentage of sales of between 43.1% and 43.6%
- SG&A as a percentage of sales of between 13.8% and 14.3%
- To deploy $160 million to $170 million in capital expenditures
- To actively repurchase shares under its normal course issuer bid
See the full Earnings Release here
Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’, please click on The List menu item.
‘The List’ is not meant to be a template for investors to copy exactly. Instead, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolio. It is only a starting point for our analysis and discussion.
The List (2022)
Last updated by BM on December 09, 2022
*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| AQN-N | Algonquin Power & Utilities | 9.8% | $7.19 | -49.9% | $0.70 | 5.4% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $61.78 | 18.6% | $0.47 | 26.2% | 12 |
| BCE-T | Bell Canada | 5.7% | $63.34 | -3.9% | $3.64 | 4.0% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 4.2% | $34.68 | -14.9% | $1.44 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.6% | $60.59 | -10.6% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.7% | $170.04 | 9.8% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 3.9% | $149.75 | -18.2% | $5.85 | 21.1% | 11 |
| CU-T | Canadian Utilities Limited | 4.8% | $37.32 | 1.9% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $82.43 | 30.0% | $0.22 | 9.2% | 11 |
| EMA-T | Emera | 5.0% | $53.36 | -14.7% | $2.68 | 4.1% | 15 |
| ENB-T | Enbridge Inc. | 6.4% | $53.39 | 7.8% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.2% | $32.27 | -29.6% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.9% | $140.81 | 3.5% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.9% | $54.98 | -9.1% | $2.17 | 4.3% | 48 |
| IFC-T | Intact Financial | 2.0% | $203.97 | 24.6% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.2% | $125.55 | 22.2% | $1.54 | 12.4% | 10 |
| MGA-N | Magna | 3.1% | $58.24 | -28.6% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.4% | $78.38 | 16.9% | $1.10 | 12.2% | 27 |
| RY-T | Royal Bank of Canada | 3.8% | $130.91 | -4.3% | $4.96 | 14.8% | 11 |
| SJ-T | Stella-Jones Inc. | 1.6% | $48.69 | 19.7% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.1% | $66.12 | -5.8% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.9% | $90.55 | -8.9% | $3.56 | 12.7% | 11 |
| TFII-N | TFI International | 1.0% | $103.87 | -6.2% | $1.08 | 12.5% | 11 |
| TIH-T | Toromont Industries | 1.5% | $99.89 | -12.1% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 6.2% | $57.74 | -3.3% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.7% | $28.10 | -5.6% | $1.33 | 6.2% | 18 |
| WCN-N | Waste Connections | 0.7% | $139.94 | 4.4% | $0.95 | 11.8% | 12 |
| Averages | 3.1% | -2.5% | 10.6% | 18 |
